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By Radzuan Halim
"Criminal fraud is one of the besetting evils of our time. While less dramatic to individuals than crimes of violence like murder, rape and wounding, fraud can still at the individual level inflict misery and hardship. At the community level the damage is immense, involving as it does many millions of dollars."
David Lanham et al, Criminal Fraud, 1987
It is indeed sickening to learn of people getting cheated in investment and financial scams. The authorities have issued numerous warnings to the public, but the number of victims continue to grow.
One has to remember that normal investing is risky enough, even with properly-studied projects involving good parties. But once you involve con men or con women the result is a sure thing - a loss for the victim with little likelihood of recovery.
It is disappointing to have professionals, lawyers, accountants and doctors ending up as victims as well. If the well-educated can be bamboozled, what chance has the man-in-the-street? Furthermore, such professional victims can be held up by scammers as shining examples to potential victims. They would say, "Look, you can doubt me but Mr X, a rich and accomplished professional, is a participant!"
Another irritation is that, when you, as a good Samaritan, try to advise a person to stay away from a scheme, you do not get a "thank you". Instead the potential victim is likely to turn abusive. He says, "Why are you trying to prevent me from getting rich?" I would plead to those who know better or who do detect a scam not to keep quiet when they see acquaintances being led to the slaughter. Put on a thick skin and plainly tell potential victims not to part with their money at all costs. Be prepared to take some abuse to prevent a friend getting cheated. Sometimes the kay poh role is fully justifiable.
Financial scams and schemes are nothing new. These had been with us since the beginning of time. And it is a world-wide phenomenon. A decade ago, a Ponzi scheme akin to our home-grown ganda wang anda swept the whole of Albania, driving her population crazy and almost bringing down the government.
The varieties of financial scams are legion. While it is not possible to enumerate all categories, here are some usual hallmarks to look for:
* Eye slower than the hand. Examples are the usual three-card or three-cup trick. This side-walk trickster shuffles the cards or cups and you need to choose the picture card or the cup containing the shell. I first came across it during a school excursion to Air Itam, Penang during the early 60s. Even school teachers could not resist taking a flutter and most lost money. The trick works as the hand is really faster than the eye. In fact your own eyes mislead you away from the correct card or cup.
* Enticing you with small initial wins. It is not uncommon for snooker and golf players to take bets. What the hustler does is to entice a victim with initial wins or narrow losses. This emboldens the victim to take bigger and bigger bets. When the really big bet comes along the hustler reveals his true skills. Earlier he had been playing well below his actual capabilities.
* The Ponzi. Most investment scams are based on the Ponzi scheme, named after the legendary Italian-American trickster who operated in Boston in the 1920s. The idea is simple but the possibilities and variations are tremendous. The operator promises big returns for an investment and pays out handsomely at the initial stage. In fact no project or investment actually exists. Money from new investors are used to pay earlier investors. When the funds collected reaches a certain level, the operator absconds. Usually even the earlier investors would also lose as they would invariably make larger investments after receiving the earlier payments. Examples of the Ponzi methodology can be found in banking and insurance. The banker keeps giving bigger and bigger loans to a client. The borrower is given a first loan of RM10,000. Before the loan gets into default, the banker grants a second loan of RM20,000 (to a related party) and so on. The bank auditors are misled as the earlier loans are all duly repaid. In an insurance situation, the insurance company is actually insolvent but utilises premiums paid by new policy holders to service the claims of earlier policy holders.
* Nigerian advance payment scam. The scam goes like this: The victim is told of a huge fortune being held somewhere in Africa. The owners are unable to transfer the money out unless he can use (tumpang) someone who has a bank account in Malaysia. For mere use of the bank account, the account holder would be paid a handsome percentage of the huge fortune. They key to the scam comes when the victim is told that the funds transfer could not proceed due to a "small" impediment - a junior government official needs to be greased for the "minor" sum of US$30,000 (RM102,000), a minuscule sum as compared to the big commission to be earned. Overcome by greed the victim scrambles to raise the downpayment. Once he hands it over the scammers disappear. The downpayment from the victim constitutes the whole purpose and subject matter of the exercise. This scam is usually associated with Nigerians. To be fair the Nigerian authorities had gone to great lengths to reduce this menace by issuing extensive warnings in the international media.
From personal experience I have observed the following:
Name lending by VVIP. A common method in many scams is the use of notable individuals. This is to lend respectability to the schemes and to counter possible doubts. Usually the VVIP "lends" his house as the venue for scammers to meet victims. The victims will be suitably impressed to be served tea by the VVIP himself. During the scheme briefing, however, the VVIP will keep a studied silence, not uttering a word, and not indicating any support for the scheme itself. No doubt the VVIP is well aware of the possibility of prosecution.
VVIP wants to favour you (from a particular community). One variation I came across had this byline: A VVIP, who had made a lot of money in mega projects wanted to benefit ordinary people, but only Malays. To my query as to why the sudden generosity from a person not known to be particularly charitable, there was a ready answer: The guy's conscience was troubling him, he had since engaged a famous religious instructor and was preparing to give up all his wealth. The truth of the matter was there was no such change of mindset on the part of the VVIP. He had not even heard of the scheme.
How do we prevent people from becoming victims to scammers? And how do we discourage fraudsters from carrying out scams? It is clear that we need to act both on potential victims as well as scammers. For potential victims, we have to continue with financial education, awareness programmes and information. As it is the newspapers are full of warnings as to the dangers of "get rich quick" schemes. What is needed is more explanations on the modus operandi of such schemes so that the community leaders and opinion-makers at all levels can better explain the matter to ordinary people.
As to preventive and punitive measures, there already exist numerous statutes relating to "get rich quick" schemes. These include the BAFIA (Banking and Financial Institutions Act), Companies Act, Securities Commission Act and the Penal Code. BAFIA tackles deposit-taking, the Companies Act and Securities Commission Act deal with issuance of shares and other participatory interests without prospectus, while the Penal Code deals with cheating and misappropriation.
The present statutes, while beneficial, are not designed specifically to tackle scams and schemes. We inherit the British common waw approach which is not sufficiently robust in tackling financial crime. I would recommend that the Attorney-General's Chambers take a serious look at the American model for tackling financial scams. First, American law takes a much more robust approach to the definition and standard of proof for fraud. Financial fraud is extremely difficult to establish under the British approach. Second, we should consider adopting several provisions under American law relating to mail-wire-wireless fraud and racketeering. Mail fraud was enacted as early as 1872 and has proven highly effective in fraud prevention and prosecution. Fraudsters can be expected to use the post, telephone, telegraph or internet and that is where mail fraud automatically attaches to their activity. Then there is the much feared RICO legislation (The Racketeer Influenced and Corrupt Organisations Statute). RICO focuses not only on organised crime but on criminal activities in which there is a scheme or repetitive pattern. This makes RICO an effective tool for tackling most types of get rich quick schemes.
At the end of the day the final bastion in protecting people from getting conned is their own common sense. No statutory and preventive regime can prevent loss to someone "determined to be conned". Here are some common sense approaches which you might want to consider. First, ask why should someone who is not a relative or a close friend would want you to get rich. There must be a catch somewhere. Second, think hard and deep on the transfer of property to someone previously unknown to you. Can you get it back when you want it? Remind yourself that in your usual dealings you would only hand over cash to your bank and would insist upon a receipt. Third, do not be fooled by variations to the scam methods already known to you. Sure, scammers would change the money-source from Nigeria to South Africa or that the targets "being helped" are no longer elderly Malays but retired Indian government servants. You can always expect scammers to make variations but their objective never changes: to get at your money.
Source: The Sun
Recently, a local daily reported that Nigerian students studying in University Sains Malaysa were arrested for being involved in a syndicate operating internet romance scams. The 14 member syndicate (3 of which are local women), which had been operating for 2 years in Penang, had cheated 111 women of between RM5,000 and RM155,000 each. Surprisingly a 73-year-old woman was swindled of the RM155,000.
The Syndicate's modus operandi apparently is to attract and woo single women through the internet by representing themselves as "good looking British men".
After gaining the women's trust, these con man Casanovas will express their intention to send gifts to these women.
These gullible victims will then receive calls from a syndicate member (who will normally be a local woman) impersonating a Custom officer. She will tell the victims that the gifts from their "British boyfriend" had arrived in Malaysia but had been held up by the Customs Dept because a penalty had to be paid.
These love struck women will then pay the "penalty" into a predetermined local bank account mentioned by the "Custom officer" in hope of getting the gifts released.
Of course, their 'British boyfriends' disappeared after the victims paid the "penalty".
Read this related story on Cyber Casanovas targeting Malaysian women.
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